Medicare Levy & MLS Surcharge 2026: Thresholds, Rates & How to Avoid the Extra Tax

Direct answer: The Medicare Levy is 2% of taxable income for most Australian residents. The Medicare Levy Surcharge (MLS) adds 1.0%, 1.25% or 1.5% for singles earning above $101,000 and families above $202,000 who do not hold eligible private hospital cover. Basic hospital cover is often cheaper than paying the MLS, and the surcharge is calculated on top of the standard 2% levy — meaning a higher-income earner without hospital cover can face a combined Medicare hit of up to 3.5% of taxable income.

Data note: The figures in this article are from the Australian Taxation Office (ATO) as at July 2026. MLS income thresholds and tier rates apply to the 2025-26 income year and are expected to continue for 2026-27. The Medicare Levy rate is set under the Medicare Levy Act 1986 at 2% of taxable income. MLS thresholds have been unchanged for several years and are not indexed. The family threshold increases by $1,500 for each dependent child after the first. All dollar amounts are in Australian dollars.

Medicare Levy: the baseline 2%

The Medicare Levy is a compulsory contribution to Australia's public health system. For the 2026-27 income year, it is 2% of taxable income for Australian residents earning above the relevant threshold. The levy is included in the PAYG withholding that your employer deducts from salary, so most employees pay it progressively through the year rather than as a lump sum at tax time.

Lower-income earners may qualify for a reduction or full exemption from the Medicare Levy. The ATO publishes the reduction thresholds annually, and the amount of the reduction phases out as income rises. If your taxable income is below the published low-income threshold for your circumstances, the levy is either reduced or waived entirely.

Foreign residents and some categories of temporary visa holders are not liable for the Medicare Levy. However, most working holiday makers and temporary residents who are treated as Australian residents for tax purposes do pay the levy. The distinction depends on the ATO's residency test, which considers factors including days of presence in Australia, family connections and intention to reside.

If your taxable income is $90,000, the Medicare Levy is $1,800. If your income is $150,000, it is $3,000. The levy is a flat percentage with no tiers or caps — it applies to total taxable income above the low-income reduction zone.

MLS: the surcharge on top of the levy

The Medicare Levy Surcharge is a separate charge applied to higher-income earners who do not hold an eligible level of private patient hospital cover. The MLS is calculated on your taxable income plus reportable fringe benefits (the same income base used for the MLS assessment), and it sits on top of the standard 2% Medicare Levy. The combined effect can be substantial.

The 2026 MLS single-income thresholds and rates are:

1. Income up to $101,000 · No MLS payable
2. Income $101,001 to $118,000 · MLS at 1.0% of income
3. Income $118,001 to $158,000 · MLS at 1.25% of income
4. Income $158,001 and above · MLS at 1.5% of income

For families and couples, the income threshold is $202,000. The threshold increases by $1,500 for each dependent child after the first — so a family with two dependent children has a threshold of $203,500. If the combined income of the couple (or single parent) exceeds the family threshold and neither holds eligible hospital cover, the MLS applies at the same tier rates.

The MLS is charged per person who does not hold hospital cover. If a couple has combined income of $250,000 and only one partner holds hospital cover, the MLS applies only to the partner without cover.

How much MLS costs at sample incomes

To show the practical impact, here is the MLS cost for three income levels if no eligible hospital cover is held:

For a single earning $110,000: MLS is 1.0% of $110,000, which equals $1,100 for the year. Combined with the 2% Medicare Levy of $2,200, the total Medicare-related cost is $3,300 — an effective 3.0% of taxable income.

For a single earning $140,000: MLS is 1.25% of $140,000, which equals $1,750 for the year. Combined with the 2% Medicare Levy of $2,800, the total is $4,550 — an effective 3.25% rate.

For a single earning $180,000: MLS is 1.5% of $180,000, which equals $2,700 for the year. Combined with the 2% Medicare Levy of $3,600, the total is $6,300 — an effective 3.5% rate.

For a family with combined income of $250,000 and no hospital cover for either partner: If both partners are uninsured, MLS at 1.25% applies to each partner's share of the income. The combined Medicare Levy and MLS for two partners on $125,000 each would be $2,500 Medicare Levy each plus $1,562.50 MLS each — a total of $8,125 across the couple.

How to avoid the MLS: basic hospital cover

The most straightforward way to avoid the MLS is to hold an eligible private patient hospital cover policy. An eligible policy must provide hospital cover and be registered with the Australian Prudential Regulation Authority (APRA). Extras-only cover (dental, optical, physiotherapy) does not qualify — the policy must include hospital cover.

Basic hospital cover policies typically start from around $100 to $140 per month for a single adult, depending on the insurer and excess level. At $1,200 to $1,680 per year, a basic hospital policy compares favourably with MLS costs once income crosses the $101,000 single threshold. At $110,000 income the MLS is $1,100 — already in the same ballpark as a basic policy. At $140,000 income the MLS is $1,750, which exceeds most basic policy costs.

The decision is not purely a cost comparison. Hospital cover provides access to private hospitals and choice of specialist, which can be valuable even if the primary motivation is tax minimisation. The MLS is payable through the tax system as part of the annual assessment, so you either pay the surcharge to the ATO or pay a premium to a health insurer — the net cash-flow difference can be small, but one option delivers hospital access and the other does not.

MLS and borrowing power: a secondary effect

The MLS does not reduce your taxable income — it is an additional tax assessed at lodgement time, not a deduction that flows through to your PAYG withholding in real time. However, it does reduce your net after-tax financial position, which is relevant for serviceability assessments in a home loan application.

When a lender evaluates your borrowing capacity, they start with your gross income and subtract taxes and levies. The MLS effectively raises your effective tax rate, which reduces the net income available for loan repayments. A single earning $180,000 without hospital cover has an effective Medicare-related cost of 3.5% — an extra $2,700 per year that lowers servicing capacity compared with an identical borrower who holds basic hospital cover and pays only the 2% levy. Across a 30-year loan term, the difference in after-tax income can affect the maximum borrowing amount by tens of thousands of dollars.

The Arrivau borrowing power calculator at /calculators/borrowing-power/ lets you model your after-tax income accurately, including the Medicare Levy. To factor MLS into the assessment, adjust your effective tax rate or discuss the scenario with a consultant.

MLS and the lifetime health cover loading

Separate from the MLS, the Lifetime Health Cover (LHC) loading is an additional cost for people who take out hospital cover after age 31. If you do not hold hospital cover by 1 July following your 31st birthday, a loading of 2% per year (capped at 70%) is added to your hospital premium when you eventually take out cover. The LHC loading continues for 10 years of continuous cover before it is removed.

The LHC and MLS are different mechanisms with different triggers: the MLS is a tax surcharge for higher-income earners without hospital cover in a given year, while the LHC is a premium loading that follows you when you later take out cover. Both provide incentives to hold hospital cover early and continuously.

Internal links for the next decision

• Income tax calculator — model Medicare Levy, MLS and take-home pay in one pass
• Australian income tax rates 2026-27 — the full bracket and rate schedule
• HELP/HECS repayment 2026-27 — understand the marginal repayment system
• Borrowing power calculator — see how your after-tax income translates to loan capacity
• Mortgage repayment calculator — estimate monthly repayments based on your net income

Information sources

This article draws on published rates and guidance from the Australian Taxation Office as at July 2026, including the Medicare Levy Act 1986, the ATO's MLS thresholds and tier rates, and the Private Health Insurance Act 2007. The MLS income thresholds have not been indexed for several years. Lifetime Health Cover rules are set under the Private Health Insurance Act and administered by the Department of Health.

FAQ

Do I pay the MLS if I have extras cover but no hospital cover?

Yes. Extras-only cover (dental, optical, physiotherapy) does not satisfy the MLS exemption. You must hold an eligible private patient hospital cover policy to avoid the MLS. Extras cover alone will not exempt you.

Is the MLS calculated on my total income or only on the amount above the threshold?

The MLS is calculated on your total income for MLS purposes (taxable income plus reportable fringe benefits), not only the income above the threshold. This is different from how the HELP/HECS marginal repayment works. Once you cross the threshold, the MLS rate applies to the full income.

What counts as a family for MLS purposes?

For MLS purposes, a family is a couple (married or de facto, including same-sex couples) or a single parent with dependent children. The family threshold for 2026 is $202,000, increasing by $1,500 for each dependent child after the first. If combined income exceeds the family threshold, the MLS applies to each partner who does not hold eligible hospital cover.

Can I take out hospital cover mid-year and avoid the MLS?

The MLS is calculated on a pro-rata basis for the number of days in the income year that you held eligible hospital cover. If you take out cover on 1 January, you are exempt from the MLS for the 183 days you held cover, but liable for the 183 days before that. Taking out cover earlier in the year reduces the surcharge proportionally.

How do I know if my income crosses the MLS threshold?

Use the Arrivau income tax calculator at /calculators/income-tax/ to model your income, Medicare Levy and MLS exposure in one pass. The calculator applies the current thresholds and shows the surcharge impact at your income level.

General information disclaimer

This article is general information only and is not personal financial, tax, legal or credit advice. Rates, thresholds and policies can change without notice. Arrivau Pty Ltd (ABN 81 643 901 599) provides credit assistance as an ASIC Credit Representative, CRN 530978. Consider your objectives, financial situation and needs, and seek licensed advice before making a financial decision. For an assessment of your borrowing position, speak with an Arrivau consultant — we respond within one business day.